Accounting scandals typically involve executives misusing funds, overstating revenues or assets, or underreporting expenses or liabilities. This can amount to fraud. Common causes include executives temporarily reducing stock prices to facilitate company takeovers for personal gain or feeling pressured to alter financials for personal benefit. Some of the largest corporate accounting scandals include Enron inflating assets by $11 billion, WorldCom overstating assets by $3.8 billion, and Tyco executives stealing $150 million and inflating income by $500 million. These scandals often result in bankruptcy, large fines, and executive prison sentences.

1. By: Otoo Felix Kizito

2. Accounting scandals, or corporate accounting
scandals, are political and business scandals which arise with the
disclosure of misdeeds by trusted executives of large public
corporations. Such misdeeds typically involve complex methods for
misusing or misdirecting funds, overstating revenues, understating
expenses, overstating the value of corporate assets or underreporting
the existence of liabilities, sometimes with the cooperation of officials
in other corporations or affiliates.
In public companies, this type of "creative accounting" can amount to
fraud and investigations are typically launched by
government oversight agencies.

3. Causes:
It is fairly easy for a top executive to reduce the price of his/her company's stock –
due to information asymmetry. The executive can accelerate accounting of
expected expenses, delay accounting of expected revenue, engage in off balance
sheet transactions to make the company's profitability appear temporarily
poorer, or simply promote and report severely conservative estimates of future
earnings. Such seemingly adverse earnings news will be likely to (at least
temporarily) reduce share price. There are typically very few legal risks to being
'too conservative' in one's accounting and earnings estimates.
A reduced share price makes a company an easier takeover target. When the
company gets bought out (or taken private) – at a dramatically lower price the
takeover artist gains a windfall from the former top executive's actions to
surreptitiously reduce share price. This can represent tens of billions of dollars
(questionably) transferred from previous shareholders to the takeover artist. The
former top executive is then rewarded with a golden handshake for presiding over
the fire-sale that can sometimes be in the hundreds of millions of dollars for one
or two years of work.

4. All accounting scandals are not caused by top executives. Oftentimes
managers and employees are pressured or willingly alter financial
statements for the personal benefit of the individuals over the company.
Corporate malfeasance has earned a place among the defining themes of
the last-and-a-half, helping give birth to various global and regional
financial recessions. Here’s a look a who, what, when and how of some of
the worst corporate accounting scandals.

5. WASTE MANAGEMENT SCANDAL (1998)
Company
Houston-based, publicly traded waste management
company
What Happened
Reported $1.7 billion in fake earnings
Main Players
Founder/CEO/Chairman Arthur Andersen
Dean L. Buntrock Company Auditors

6. How They Did It
The company allegedly falsely increased the depreciation time for their
property, plants and equipment on the balance sheet.
How They Got Caught
A new CEO and management team went through the books, that is financial
and accounting books.
Penalties
Settled a shareholder class-action suit for $457 million. US Securities and
Exchange Commission (SEC) fined Arthur Andersen $7 million.
Fun Fact
After the scandal, the new CEO A. Maurice Meyers set up an anonymous
company hotline where employees could report dishonest or improper behavior.

7. ENRON SCANDAL (2001)
Company
Houston-based commodities, energy and service
corporation
What Happened
Shareholders lost $774 billion, thousands of employees and investors lost their
retirement accounts and many employees lost their jobs.
Main Players
CEO Jeff Skilling and former CEO Ken Lay
How They Did It
Kept huge debts off the balance sheets
How They Got Caught
Turned in by internal whistle-blower Sherron Watkins.
High stock prices fueled suspicions.

8. Penalties
Lay died before serving time. Skilling got 24 years in prison. The company filed for
bankruptcy. Arthur was found guilty of fudging Enrons accounts.
Fun Fact
Fortune Magazine named Enron “America’s
Most Innovative Company” for six years in a
row prior to the scandal.

9. WORLDCOM SCANDAL (2002)
Company
Telecommunications company: now
MCI, Inc.
What Happened
Inflated assets by as much as $11 billion, leading to 30,000 lost jobs and $180
billion losses for investors
Main Players
CEO Bernie Ebbers
How He Did It
Underreported line cost by capitalizing rather than expensing, and inflated
revenues with fake accounting enteries

10. How He Got Caught
Worldcom’s internal auditing department uncovered $3.8 billion in fraud.
Penalties
CFO was fired, controller resigned, and the company filed for bankruptcy. Ebbers
was sentenced to 25 years for fraud, conspiracy and filing false documents with
regulators.
Fun Fact
Congress passed the Sabanes-Oxley Act, introducing the most sweeping set of new
business regulations since the 1930’s.

11. FREDDIE MAC SCANDAL (2003)
Company
Federally backed mortgage-financing giant
What Happened
$5 billion in earnings were missated
Main Players
President/COO David Glenn
Chairman/CEO Leland Brendsel
Ex-CFO Vaughan Clarke
Former Sr. VP’s Robert Dean and Nazir Dossani
How They Did It
Intentionally misstated and understated earnings.

12.  How They Got Caught
A SEC investigation exposed their fraudulent act.
Penalties
$125 million in fines and the firing of
Glenn, Clarke and Brendsel
Fun Fact
A year later, Fannie Mae, the other federally
backed mortgage financing company was
caught in an equally stunning scandal.

13. AMERICAN INSURANCE GROUP SCANDAL
(2005)
Company
Multinational insurance corporation
What Happened
Massive accounting fraud to the tune of $3.9 billion was alleged, along with bid-
rigging and stock price manipulation.
Main Players
CEO Hank Greenberg
How He Did It
Allegedly booked loans as revenues, steered clients to insurers with whom AIG had
payoff agreements and told traders to inflate stock prices.

14. How He Got Caught
SEC regulator investigations, possibly tipped off by a whistle-blower.
Penalties
Settled with the SEC for $10 million in 2003 and $1.64 billion in 2006, with a
Louisiana pension fund for $115 million and with 3 Ohio pension funds for $725
million.
Greenberg was fired but faced no criminal charges.
Fun Fact
After posting the largest quarterly corporate loss in history in 2008 ( $61.7 billion )
and getting bailed out with taxpayers dollars, AIG executives rewarded themselves
with over $165 million in bonuses.

15. TYCO SCANDAL (2002)
Company
New Jersey based blue-chip Swiss security
systems company.
What Happened
CEO & CFO stole $150 million and inflated company
income by $500 million.
Main Players
CEO Dennis Kozlowski and former CFO Mark
Swartz.
How They Did It
Siphoned money through unapproved loans and
fraudulent stock sales. Money was smuggled out of
the company disguised as executive bonuses or
benefits.

16. How They Got Caught
SEC and Manhattan D.A investigations uncovered questionable accounting
practices, including large loans made to Kozlowski that were then forgiven.
Penalties
Kozlowski and Swartz were sentenced to 8-25 years in prison. A class action law
suit forced Tyco to pay $2.92 billion to investors.
Fun Fact
At the height of the scandal, Kozlowski
threw a $2 million birthday party for his wife
on an island, complete with a Jimmy Buffett
performance.

17. LEHMAN BROTHERS SCANDAL (2008)
Company
Global financial services firm
What Happened
Hid over $50 billion in loans disguised as
sales
Main Players
Lehman Executives and Company’s auditors, Ernst & Young
How They Did It
Allegedly sold toxic assets to Cayman Island banks with the understanding that they
would be bought back eventually. Created the impression Lehman had $50 billion more
Cash and $50 billion less in toxic assets than it really did.

18. How They Got Caught
Went bankrupt
Penalties
Forced into the largest bankruptcy in U.S history. SEC didn’t prosecute due to lack of
evidence.
Fun Fact
In 2007 Lehman Brothers was ranked
#1
“Most Admired Securities Firm” by
Fortune Magazine.

19. Apart from the most notable ones discussed earlier, the are other popular
accounting scandals includes:
 Autonomy Corporation (HP) 2012 Auditing Firm: Deloitte & Touche
Olympus Corporation 2011 Japan Auditing Firm: Ernst & Young
Lockheed Corporation 1976
Micro Strategy 2000 Auditing Firm: Pricewaterhouse Corp
Lernout & Hauspie 2000 Belguim Auditing Firm: KPMG
Swissair 2001 Switzerland Auditing Firm: McKinsey & Company
Anglo Irish Bank 2008 Ireland Auditing Firm: Ernst & Young
It can be seen from the previously analyzed scandals and from the major
international accounting scandals, that the two main causes of these scandals are
executive greed and over emphasis on short-term financial performance
expectations.

20. THANK YOU !!!!!!